PROFIT & LOSS ACCOUNT

No one was ever ruined by taking a profit. -Stock Exchange Maxim

Dr. Jatin Pancholi Email: email@jatinpancholi.com Website: http://www.jatinpancholi.com

Dr. Jatin Pancholi has compiled and prepared this teaching note from various sources, as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The handling of a management situation requires personal guidance by a professional. To obtain copies, request permission to reproduce and to send feedback, please send email to email@jatinpancholi.com. Visit website http://www.jatinpancholi.com. Those wishing to co-author next edition of this handout are requested to contact via email.

Introduction

Annual Report Financial Statement

Balance Sheet Profit & Loss Account

Balance Sheet is a position statement. P&L A/c is a flow statement. Companies Act:

A Balance Sheet as on the last day of the financial year A Profit & Loss Account for the financial year.

P & L A/c
P&L A/c is also called Income Statement. Income is calculated as the difference between revenues and expenses.

Revenues: from operations Expenses: specific product/service/period

Accountants have agreed to use the accrual basis of accounting rather than the cash basis.

Revenues and Expenses

Revenues - gross increases in owners equity arising from business operations/delivery of goods-services to customers Expenses - decreases in owners equity that arise because goods or services are delivered to customers

TRANSACTION
INCOME EXPENDITURE

Revenue Income

Capital Income

Revenue Expendi ture

Capital Expend iture

P & L TRANSACTION A/c

Income (Revenue Income) Less INCOME EXPENDITURE Expenditure (Revenue Expenditure) NET PROFIT/LOSS

Revenue Income

Capital Income

Revenue Expendi ture

Capital Expend iture

BALANCE SHEET TRANSACTION

INCOME

SOURCES OF FUNDS (Liabilities) (Capital Income) APPLICATION OF FUNDS (Assets) (Capital Expenditure)

EXPENDITURE

Revenue Income

Capital Income

Revenue Expendi ture

Capital Expend iture

TRANSACTION
INCOME EXPENDITURE

Revenue Income

Capital Income

Revenue Expendi ture

Capital Expend iture

BALANCE SHEET

P & L A/C

P & L A/c CONCEPTS

ACCOUNTING PERIOD
Expenditure during A/c period which are also expenses of that period. Expenditure during the A/c period which will become expense only in future periods Expenditure during the previous A/c period which will become expenses during the current A/c period Expense of the current A/c period which have not yet been paid

The Accounting Time Period

Companies also prepare statements for interim periods, generally on a quarterly or monthly basis.

P & L A/c CONCEPTS (contd.)

REALIZATION CONCEPT
point of time or revenues earned recognition of revenues

ACCRUAL CONCEPT
profits are measured by change in Owners equity revenues increases OE, expenses decreases OE

MATCHING EXPENSES WITH REVENUE

relevant period

Revenues and Expenses

Income (profit) - the excess of revenues over expenses

Revenues - Expenses = Profit

Retained earnings - additional owners equity generated by income or profits

Revenues increase owners equity. Expenses decrease owners equity.

Recognition of Revenues

Recognition - a test to determine whether revenues should be recorded in the financial statements

THE DUET: BS & P&L

BS provides a snapshot of an entitys financial position at an instant in time. The P&L A/c provides a moving picture of events over a span of time and explains the changes that have taken place between BS dates.

Hang in there! Half course is over

Thank You
Yeah, thats easy for you to say!

Dr. Jatin Pancholi Email: email@jatinpancholi.com Website: http://www.jatinpancholi.com

Dr. Jatin Pancholi has compiled and prepared this teaching note from various sources, as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The handling of a management situation requires personal guidance by a professional. To obtain copies, request permission to reproduce and to send feedback, please send email to email@jatinpancholi.com. Visit website http://www.jatinpancholi.com. Those wishing to co-author next edition of this handout are requested to contact via email.